Montreal-based Velan keeps things flowing

Jeff Heinrich, THE GAZETTE01.11.2014

Velan founder A.K. Velan with sons Tom, left, president, and Ivan, executive vice-president. Though the company went public in 1996, the Velans still control 70 per cent of the equity.John Mahoney
/ The Gazette

Velan's Global presenceJeanine Lee
/ The Gazette

Valves attached to pallets await shipping in one of Velan valve company’s plants in Montreal.John Mahoney
/ The Gazette

Velan’s 2,500 cryogenic valves help control the flow at CERN, a 27-kilometre underground tunnel beneath the Jura mountain range between France and Lake Geneva.A.K. Velan Inc.

Anacortes Refineries on Anacortes Island in Washington state, with Mount Baker looming behind them. Velan has supplied a wide range of low-emission, environmentally safe valves to these refineries over the years.A.K. Velan Inc.

Velan and Hawkins-Hamilton have worked together to equip the U.S. Navy with Velan valves and steam traps. This illustration of a next-generation USS Gerald R. Ford-class nuclear aircraft carrier by Newport News Shipbuilding is an example of one such collaborative project.A.K. Velan Inc.

MONTREAL — Valves don’t have the visibility of, say, a new Montreal métro car or the bling of a fancy Swiss wristwatch or the sexy engineering of an Italian espresso machine.

In fact, most people will never see the precision-crafted steel valves that Quebec multinational Velan Inc. makes. Yet they’re everywhere, in more than 60 countries worldwide.

In 2012-2013, the St-Laurent firm sold more than $500 million worth of its industrial valves, mostly to the power-generation and oil-and-petrochemical sectors in the U.S. and abroad.

The record sales — $500.5 million U.S. in the year ended February 2013 — capped a decade of growth in which gross revenues rose almost threefold, up from $186 million in 2003.

And with revenues continuing to rise, things keep looking up for the public company, founded in 1950 by Czech immigrant Adolph Karel Velan and now run by his sons, Tom and Ivan.

Never heard of them? You’re not alone.

“Very little is written about our company,” said the founder and chairman, known as A.K., who at 95 still goes to the office every day on Côte de Liesse Rd.

“The newspapers are writing continuously about Bombardier, SNC-Lavalin, etc. Well, we are manufacturers of industrial valves, and no industry can exist without industrial valves.”

Submarines, nickel mines, nuclear plants, oil refineries, even the CERN particle accelerator — all keep their products flowing or under control thanks to Velan valves.

“When they hear ‘valves,’ people think of their sink, or something like that,” said Tom Velan, 61, the company’s president and CEO.

“But we make valves that can cost as much as $800,000. Any industrial process has pipes and it has valves that control them. It can be a nuclear power plant or an oil refinery or anything; the way you control the flow is through valves. They run the process and are also important for safety.”

“It’s not glamorous,” added Ivan Velan, 68, the company’s executive vice-president, “but people often don’t realize that valves are in piping systems and those systems affect our daily life, from generation of electricity to pulp-and-paper to the gasoline in our automobiles that goes through refineries.”

Demand for their products ebbs and flows with the global economy, but these days the Velans are feeling good.

Since reporting their record 2012-2013 results to shareholders, sales through August were up 10 per cent, Tom Velan said. “Our profit could be better (and) our bookings have been a bit behind what we’d like, but we’re working on getting more.”

Though the current stock price of about $14.50 is nowhere near the $35 it hit in 1999, nor has matched its second-highest peak of $19.50 in 2007 (return on equity is also way down at about 4 per cent), Velan has little long-term debt and enough momentum to continue modernizing and expanding.

In the past two years, the company spent $48 million globally to widen its operations and improve productivity. It put in robotic welding and computer-numerical-control machines at its plants in North America in Quebec and Vermont; built a new plant in Coimbatore, southern India; expanded in Suzhou, eastern China; and bought a factory in Lucca, Italy.

As well, continuing a business relationship with the U.S. Navy stretching back to the 1950s, Velan completed $28 million in orders for the USS Gerald R. Ford, a $15.5-billion vessel that will be the first of a new generation of U.S. nuclear-powered aircraft supercarriers. Velan also got $25 million in orders for its sister ship, the John F. Kennedy, to be launched in 2020.

Then there’s CERN. In a 27-kilometre underground tunnel beneath the Jura mountain range between France and Lake Geneva, the European Organization for Nuclear Research runs experiments in its Large Hadron Collider, passing frigid liquid helium through more than 40,000 pipe junctions. Velan’s 2,500 cryogenic valves help control the flow.

You can see what it looks like in Google Street View: http://home.web.cern.ch/about/updates/2013/09/explore-cern-google-street-view

“We’re a very export-oriented business,” said Tom Velan, even though Velan’s steel castings comes from overseas, mainly South Korea and India. “Sixty-two per cent of our sales are outside of North America, 89 per cent is outside Canada and 99 per cent is outside Quebec. Our sales in China last year were over $100 million, most of that being nuclear.”

And yet, remarkably, almost half of Velan’s valves — 42 per cent — are made right here in Quebec, at its three plants in St-Laurent and one in Granby. The four unionized factories and head office employ 900 people, about 45 per cent of the company’s 2,100 employed in Velan’s 17 facilities worldwide. By contrast, only 10 per cent work at the plant in Vermont.

Competition in the global valve business is keen and highly diversified. There are big conglomerates like Swiss-based Pentair (formerly Tyco Flow Control) and Texas-based Flowserve, as well as many niche players, especially in India and China and Korea. Many enjoy advantages over Velan: cheaper labour, subsidies, tariff protection.

As well, as an exporter, Velan has also seen its profits crimped by Canada’s strong dollar, which makes salaries and other costs here proportionally higher than they are for its competitors.

“It’s been a big drag,” Tom Velan said, noting that despite the dollar’s 37-per-cent rise in value from 2003 to 2013, the company still managed net earnings of more than $170 million.

There have been other drawbacks. Velan is charged 5.6 per cent when it brings its made-in-Quebec valves into the U.S., whereas U.S. exporters to Canada face no such duties. As well, Velan has the ongoing burden of paying legal costs — $8 million last year alone — for U.S. health claims over asbestos, commonly used in the old days to pack gaskets.

Would Velan be better off being based somewhere else?

“For a company like ours, there are very few reasons to be located in Montreal, other than the fact that we started here,” Ivan Velan said frankly. “We are here and we’d like to try to remain here, (but) the availability of qualified and trained employees is not that high, and there are all kinds of issues with Quebec which are pretty evident.

“If you want to find high-level management employees to move here, there are some issues with that (regarding the French language and schooling). Really, a company like ours should ideally be located partially in the United States — let’s say in Texas or the Carolinas — with operations overseas. “That’s the model that most of our competitors, the big names in the valve industry, followed. We resisted it, and of our $300 million sales from North America, we still machine, assemble and test primarily in Quebec. We’re the only ones in Canada doing what we’re doing.”

Call it pride of family ownership. Though the company went public in 1996, the Velans still control 70 per cent of the equity. Tom runs the show (he took over from his dad as president in 2003 and as CEO in 2011), with Ivan as his right-hand man. Their middle brother, Peter, left the company as executive vice-president in 2003, but remains a director.

“Family business can be tough on families,” Tom Velan said. “But it also has the advantage that decisions can be made quicker and there’s some consistency of management. The average CEO of public companies lasts only about three or four years; it’s a short-term cycle. We can look more long-term.”

Joining the family business wasn’t what Ivan Velan expected to do with his MBA from the University of Michigan in 1969. He soon learned, however, that “it allows you to get a considerable amount of responsibility quickly.” Last fall, he was named chairman of the Valve Manufacturers Association of America, based in Washington, D.C. — its first Canadian.

“We never paid the highest salaries in the industry, neither to the family members nor to the other employees — that’s another way we’re staying competitive,” Ivan Velan said. “But it seems the working conditions in our company are very good because we have very little turnover,” least of all among the North American factories’ unionized staff.

About half of Velan’s unionized employees in Quebec belong to the Confédération des syndicats nationaux: 385 at the three St-Laurent plants, 120 in Granby. Though its workers in Williston, Vt., are also unionized (with the United Steelworkers), most of Velan’s U.S. competitors are not — again, making it all the much harder to keep costs down because of higher wages.

Velan’s Quebec operations were hit by a four-day strike in 2009 over issues of subcontracting, group insurance plans and salaries, and there was a strike mandate before the latest contract, which expires in May 2015. But neither disturbance was like the last big strike, which shut down operations at Velan for four months in the fall of 1976.

These days, though relations between the union and management are “still tentative and still difficult,” according to Ivan Velan, there’s labour peace at the plants.

“Things are going relatively well — there’s constant communication, looking to resolve a problem instead of creating one,” said Louis Pacheco, who was union president at the factories in St-Laurent for nine years before joining management a year ago, replacing the company’s human-resources manager, who retired.

“We do have grievances (filed by the union), just like pretty much every other company, and we work them out,” said Pacheco, who has seen the issues from both sides of the fence for a decade now.

“We’ve been hiring in St-Laurent constantly — about 30 or 40 in the last two years,” he added. Interviews are now being done for machinists called numerical control operators, the people who take care of the precision machine tools run by computers.

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